We now turn to the Fair Labor Standards Act (FLSA) administrative exemption, the second of the white-collar overtime exemptions explained in this blog series. In many ways, this is the most complicated of the white-collar exemptions, and the line between an administrative employee and a non-administrative employee is not always clear. This blog post will explain the basics of the administrative exemption, but the exemption analysis is always fact-specific as to the particular job at issue.
There is a two-part duties test for the administrative exemption:
The employee’s primary duty is the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and
The employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.
Both of these tests, along with the salary basis test, must be met for the exemption to apply.
Office or Non-Manual Work Directly Related to Management or General Business Operations
An administrative employee’s primary duty must involve office-based or non-manual work, and must be directly related to management or general business operations. Determining whether an employee’s primary duty involves non-manual work is usually easy enough. The remaining requirement is more tricky.
The FLSA regulations define administrative work as work “directly related to assisting with the running or servicing of the business,” as distinguished from working on a production line or selling a product. Common examples of administrative employees include HR, accounting, and marketing. Essentially, administrative employees are recognizable because they are overhead. Administrative employees do not directly earn money for the company, but perform the behind-the-scenes work that allows the business to function smoothly. The Department of Labor’s full list of examples can be found here. (Interestingly, the administrative exemption also applies if the employee performs administrative work for the employer’s customers).
Many employees improperly rely on the administrative exemption to classify all non-manual, white collar workers as exempt. For example, some companies classify their inside salespeople as administrative exempt. The regulations, however, state that sales work is not administrative — meaning inside sales employees should be paid overtime, including overtime on any commissions payments.
Exercises Discretion and Independent Judgment on Matters of Significance
If the analysis ended here, the administrative exemption would be quite broad — even receptionists and file clerks perform administrative work, and would be overtime exempt. However, that is not the case. The second prong requires that exempt employees exercise “individual discretion and independent judgment on matters of significance.” Employees who perform relatively simple or repetitive administrative tasks, such as most receptionists and file clerks, do not meet this prong of the exemption test, and therefore must be paid overtime.
An employee exercises discretion and independent judgment if her day-to-day decisions are “free from immediate direction or supervision.” This does not mean that the employee must be wholly unsupervised, or that she has unlimited discretion. In fact, an employee exercises discretion even if she is only making a recommendation rather than the final decision, or if her decisions are sometimes reversed or revised. By contrast, if the employee spends most of her time following a set of pre-established procedures or manuals, she is not exercising discretion. It is often a close call to determine whether any individual employee or job position truly exercises the necessary degree of discretion to qualify for this exemption.
If you have questions about the application of the administrative exemption at your company, or believe that you may have been misclassified as overtime exempt, call me at (504) 267-0777 or email today.